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Modelling liquidity management in Islamic banks from a microeconomic perspective

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  • Djelassi, Mouldi
  • Boukhatem, Jamel

Abstract

The main objective of this paper is to examine the determinants of banking liquidity by explicitly integrating Islamic financial intermediation into a standard microeconomic model. Our model includes the banks’ liquidity reserves in line with profit-maximization motives and provides an analytical framework for interpreting the excess liquidity behavior commonly seen in the Islamic banking sector. Excess reserves result from an increase in a bank's deposits base combined with Islamic banks’ limited opportunities for financing and placement. The monetary policy rate appears to be a key instrument that central banks can use to resolve the problem of excess reserves.

Suggested Citation

  • Djelassi, Mouldi & Boukhatem, Jamel, 2020. "Modelling liquidity management in Islamic banks from a microeconomic perspective," Finance Research Letters, Elsevier, vol. 36(C).
    • Handle: RePEc:eee:finlet:v:36:y:2020:i:c:s154461231930488x
    DOI: 10.1016/j.frl.2019.101341
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    References listed on IDEAS

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    More about this item

    Keywords

    Liquidity management; Islamic banking; Modelling;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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